Real estate developers scramble for funding as borrowing costs surge

Mr Le Dinh Chung, CEO of SGO Homes Investment and Development JSC, recently noted that alongside land banks and regulatory approval, capital remains the lifeblood of property developers. Even a minor fluctuation in borrowing costs can dramatically inflate overall expenditure, including marketing and sales expenses.

High interest rates prolong liquidity strain

According to Mr Chung, typical projects requiring total investments of VND 1 trillion to 2 trillion are currently facing bank lending rates of 12% to 14% per year, a steep rise from the historic 8% to 10% per year range.

This gap severely burdens developers’ balance sheets, particularly as passing these incremental costs on to homebuyers via higher asking prices is no longer straightforward in the current market climate.

In addition to rising capital costs, credit accessibility poses a growing challenge. Mr Chung highlighted that businesses across the board, and smaller firms in particular, are hit hardest by high borrowing costs. Meanwhile, bank credit is increasingly concentrated among a select group of industry giants and priority sectors. As a result, small and medium-sized enterprises (SMEs) face a double whammy: paying exorbitant funding costs while struggling to secure loan facilities to expand or launch new projects.

This financial squeeze shows little sign of immediate abatement. Mr Nguyen Anh Que, Chairman of G6 Group, pointed out that deposit rates remain elevated and lending rates could stay high until at least the end of the first quarter of 2027.

In Mr Que’s opinion, the market needs more time to gauge rate adjustments late this year before a clearer trajectory for domestic capital markets emerges. He added that capital pressures may take up to three years to subside significantly.

Echoing this outlook, Ms Nguyen Hong Van, Senior Director and Head of Transactions at JLL in Hanoi, noted that an interest rate cut before the end of 2026 remains unlikely. She observed that demand for project development loans remains high, driving substantial liquidity pressure. While developers urgently require fresh capital, commercial banks must balance funding constraints against rate structures.

Consequently, interest rate cuts cannot be viewed solely through the lens of developer demand; they must be aligned with broader macroeconomic management. The aim is to strike a balance between credit demand and supply while curbing market volatility.

Developers seek alternative capital channels

With bank credit unable to meet total capital requirements, over-relying on a single funding avenue heightens corporate financial risk. This imperative has accelerated the drive toward capital diversification.

Mr Que argued that the real estate sector must expand its funding sources beyond equity and bank credit. Tapping into funds from buyers and retail investors should be further explored as part of a healthier capital structure.

However, broadening fundraising avenues does not mean loosening regulatory oversight. Lessons from the pre-2013 period demonstrate that unchecked fundraising coupled with lax monitoring can lead to the misuse of capital, exposing investors to severe risks.

Therefore, Mr Que stressed that any expansion of retail and buyer financing must be accompanied by stringent cash-flow oversight and strict legal penalties. Once developers disclose their capital deployment plans, their commitments must be rigorously monitored, alongside robust controls managed by banks.

The G6 Group chief noted that advancements in technology and an improving legal framework are creating favourable conditions to pioneer new financing mechanisms for the property sector.

From another angle, foreign direct investment (FDI) is expected to act as a vital supplementary lifeline. Ms Van emphasized that encouraging foreign capital inflows will be crucial in the coming period to bolster market liquidity and relieve pressure on domestic capital.

Beyond foreign investment, corporate bonds and domestic or international private equity funds offer viable avenues for developers.

However, Mr Chung cautioned that corporate bonds currently suit larger, highly reputable developers best. Past defaults, where certain firms failed to service debt on schedule, damaged investor trust. Consequently, tapping the bond market hinges not just on corporate demand but on transparency and creditworthiness.

Restructuring operations to ease cash flow

Developers are unable to afford to wait for the cost of borrowing to ease or for credit quotas to relax as alternative sources of funding need time to mature. Instead, a proactive alternative is to relieve capital pressures internally via corporate restructuring and operational streamlining.

"Firms should start by cutting operational overhead and reviewing their entire project portfolio. They also need to optimise headcount", Mr Chung suggested. “Developers should consider divestment/asset sales, especially if the asset is underperforming or not viable in today’s climate. Better to reinvest proceeds into core operations than to sink capital into sluggish projects".

"Sales revenues remain a major source of organic liquidity, along with asset restructuring. Developers must adjust their products to real market demand and offer attractive sales inducements to get the market liquidity going again", Mr Chung said.